The Office of Management and Budget announced last week that the annual deficit, estimated at $400 billion just a few years ago, will be $205 billion by the end of this fiscal year (which ends in September).That's still a lot of money in a nearly $3 trillion-a-year budget, but it is 1.5 percent of the gross domestic product (the measure of everything that our economy produces each year) and it's racing downward.
The latest forecast represents a $43 billion decline from last year's deficit, which has been shrinking for three years in a row.
The administration says it is solidly on track to balance the budget in five years when it will turn into a $33 billion budget surplus by 2012. But I think OMB is much too conservative in its timeline projections. If the economy continues to perform well, as I think it will, and the president keeps the lid on federal spending, as he plans to do, we will likely reach a surplus well before 2012.
Meantime, there are valuable lessons to be learned from these latest budget projections -- especially by the gloom-and-doomers who predicted the tax cuts would plunge the government into unending deficits from which we would never recover -- sacking the economy and worsening unemployment.
These are the same people who said President Kennedy's tax-rate cuts would lead to years of red ink and all sorts of economic dislocations when, in fact, they led to a budget surplus by 1969 and a much stronger economy.
The same people said President Reagan's tax cuts would wreak havoc with the government's fiscal solvency, weaken the economy and worsen inflation. But the economy came roaring back after the worst recession since the Great Depression, inflation abated, the deficit eventually began to come down and we ended up with budget surpluses in the 1990s.
And the same people said Bush's tax cuts would produce a long-term fiscal disaster and deficits as far as the eye could see. In fact, the well-timed tax cuts pulled the U.S. economy out of its sharp decline in the aftermath of the 9/11 terrorist attacks, and the resulting economic growth they triggered has produced steadily rising tax revenues that have steadily eaten into the deficit year after year.